Legal view: part-time holiday pay

How should holiday entitlement be calculated when a part-time worker’s hours increase? Charlotte Taylor, employment solicitor at Winckworth Sherwood, considers a recent case.

In the recent case of Greenfield v The Care Bureau Ltd (C-219/14), the European Court of Justice (“ECJ”) ruled that when an employee’s hours increase, their statutory annual leave entitlement should be changed to reflect that increase. However, the recalculation should only apply to the period during which working time increased and not retrospectively for the whole of the leave year. The ECJ also held that the same approach to calculating leave entitlement must be adopted regardless of whether the employment has terminated or is continuing. Clarity on these issues will be of fundamental importance to all those who engage employees on a part-time, flexible or “zero-hours” basis, and employers who have to consider changes to workforce contracts.

How much paid holiday is a worker entitled to?

The basic right to annual leave under the Working Time Regulations 1998 (“WTR”) is as follows:

A worker is legally entitled to 5.6 weeks’ paid holiday per year. An employer can include bank holidays as part of this statutory entitlement. As such, those who work a 5 day week must receive 28 days’ paid holiday per year.

Statutory paid holiday entitlement is limited to 28 days, so even those who work a 6 day week are only entitled to 28 days’ paid holiday and not 33.6 days.

Part-time workers are also entitled to 5.6 weeks’ paid holiday per year, although this will clearly amount to fewer days of paid holiday than a full-time worker would receive. For example, a worker working 3 days a week is entitled to 16.8 days of paid holiday per year.

A worker whose employment begins part way through a leave year has a pro rata statutory holiday entitlement for that year. The “leave year” is as set out in a relevant agreement, which will usually be the contract of employment.

Under the Employment Rights Act 1996, for workers whose pay varies either by reference to the hours worked or the amount of work done, a week’s pay is calculated by reference to the average of what was payable to the worker over the previous 12 weeks.

The calculation of paid holiday for atypical workers, whose working patterns change part way through a leave year, is a sensitive issue, and one that was considered in Greenfield v The Care Bureau Ltd.

The facts

Ms Greenfield was a care worker at The Care Bureau Ltd (“TCB”) from 15 June 2009 to 28 May 2013 and her employment contract stated that her working hours and days differed from week to week. The remuneration she received varied according to the number of hours and days she worked. At the beginning of TCB’s annual leave year in June 2012, Ms Greenfield was working one day per week and was therefore entitled to 5.6 days of paid leave until June 2013.

In July 2012, she took one week’s paid leave. The entitlement to paid leave was calculated at the date on which the leave was taken in July 2012, based on her working pattern for the 12-week period prior to the leave. Since Ms Greenfield had taken her leave at a time when her work pattern was one day per week, she had taken the equivalent of 7 weeks of paid leave, and accordingly exhausted her entitlement to paid annual leave.

From August 2012, Ms Greenfield’s hours increased and she worked a pattern of 12 days on, 2 days off. That pattern amounted to an average of 41.4 hours of work per week. Taking the view that she was entitled to an allowance in lieu of paid leave not taken at the time when her contract ended in May 2013, Ms Greenfield brought proceedings against TCB in the Employment Tribunal. Ms Greenfield argued that leave already accrued and taken should be retroactively recalculated and adjusted following the increase in her working hours, following a move from part-time to full-time work, so as to be proportionate to her new number of working hours and not the hours worked at the time leave was taken.

The Employment Tribunal initially held in her favour but revoked its judgment following a request for reconsideration by TCB and referred the matter to the ECJ on the following points:

Must a worker’s accrued annual leave be recalculated when their working hours increase?

If recalculation is allowed, does it only apply to that portion of the holiday year during which the employee worked increased hours?

Is a different approach to be taken depending on whether employment has terminated or is continuing?

The decision

The ECJ made it clear that the entitlement to paid annual leave accrues and each “unit” accrued has to be calculated by reference to the days, hours and/or fractions of days or hours worked and specified in the employee’s employment contract. The ECJ confirmed the following principles, which are useful for an employer to bear in mind when dealing with the calculation of its part-time employees’ holiday entitlements:

An employer needs to distinguish periods during which the worker works according to different work patterns. The number of units of annual leave accrued has to be calculated for each such period separately. Therefore, where a worker increases their hours, the employer is not required to retrospectively adjust leave already accrued, and perhaps taken, to take account of the worker’s new working pattern (although there is nothing to stop an employer adopting a more favourable approach and recalculating the employee’s entitlement to leave already accrued under the old working pattern) . However, a new calculation must be performed for the period during which working time increased.

Where the annual leave taken during the earlier part-time period exceeds the entitlement accrued in that period, an employer should deduct the excess from the new annual leave entitlement accrued during the later increased part-time (or full-time) period.

If the employee has not been able, for reasons beyond their control, to exercise their right to paid annual leave before termination of their employment, the allowance in lieu to which they are entitled must be calculated so that they are put in a position comparable to that they would have been in had they exercised that right during their employment. The calculation of the entitlement to paid annual leave therefore has to be performed according to the same principles, whether what is being determined is the allowance in lieu of paid annual leave not taken where the employment relationship is terminated, or the outstanding annual leave entitlement where the employment relationship continues.

Comment

It will come as a relief to employers to note that they are not required to retrospectively recalculate accrued holiday when a worker’s hours increase. The ECJ previously ruled in Zentralbetriebsrat der Landeskrankenhauser Tirols v Land Tirol [2010] IRLR 631 that a move from full-time to part-time work should not affect the amount of leave that has already accrued, and the ECJ has held in this case that the converse is also true.

This case acts as a reminder that particular care needs to be taken when calculating the leave entitlements of part-time staff and employers should always bear in mind their obligation not to treat part-time workers less favourably than comparable full-time workers. Errors in calculating holiday accrual and/or pay can result in potential tribunal claims, such as for breach of the WTR, indirect sex discrimination, and/or under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 and if in doubt, employers would be best placed to seek independent legal advice.